TaxProf Blog

IRS Releases 2013 Inflation-Adjusted Tax Tables

The IRS today released various inflation-adjusted 2013 tax brackets, tables, exemptions, thresholds, and other items (IR-2013-4; Rev. Proc. 2013-15, 2013-5 I.R.B. ___ (Jan. 28, 2013):

• Tax Tables:  New 39.6% added for income in excess of $400,000 single/$450,000 joint
• Standard Deduction:  $6,100 single/$12,200 joint (up $150/$200 from 2012)
• Itemized Deductions:  Phase out for income in excess of $250,000 single/$300,000 joint
• Personal Exemption:  $3,900 (up $100 from 2012), phasing out for income in excess of $250,000 single/$300,000 joint (complete phase out at $372,500/$422,500)
• Alternative Minimum Tax Exemption:  $51,900 single/$80,800 joint (up $1,300/$2,050 from 2012)
• Maximum Earned Income Credit:  $6,044 for taxpayers filing jointly with 3 or more qualifying children (up $153 from 2012)
• Estate Tax Exemption:  $5,250,000 (up $130,000 from 2012)
• Gift Tax Annual Exclusion:  $14,000 (up $1,000 from 2012)

National Taxpayer Advocate Releases Annual Report to Congress

National Taxpayer Advocate Nina E. Olson today released (IR-2013-3) her 2012 Annual Report to Congress, identifying the need for tax reform as the overriding priority in tax administration.:

The Advocate also expressed concern that the Internal Revenue Service is not adequately funded to serve taxpayers and collect tax, and identified ways in which this chronic underfunding harms taxpayers and the public fisc. She also found that the IRS is not doing enough to assist victims of tax-related identity theft and return preparer fraud.

• Bloomberg:  4-Million-Word U.S. Tax Code Tops Problem List, Report Says
• The Hill:  IRS Watchdog: 6 Billion Hours Spent Dealing with the Tax Code Each Year
• New York Times:  I.R.S.’s Taxpayer Advocate Calls for a Tax Code Overhaul
• Reuters:  IRS Watchdog Urges Simpler Tax Code to Cut Costs, Confusion
• Slate:  Majority of Americans Will Pay Someone Else To Fill Out Tax Returns This Year
• USA Today:  Advocate: IRS Does Poor Job on Identity Theft
• Wall Street Journal:  Report Highlights Costs of Tax Code’s Complexity
• Washington Post:  6 Billion Hours Working on Taxes: National Taxpayer Advocate Says They’re Just Too Complicated
• Washington Post:  IRS Watchdog: Tax Code Hurts Revenue, Need for Reform an ‘Overriding Priority’

2013 Tax Season Opens on Jan. 30

Following the passage ofthe American Taxpayer Relief Act, the IRS announced today (IR-2013-12) it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30:

The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers — more than 120 million households — should be able to start filing tax returns starting Jan 30.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension. ...

Who Can File Starting Jan. 30?

The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Who Can’t File Until Later?

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances.

GAO: IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources

The Government Accountability Office has released IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources:(GAO-13-151):

The IRS spends most of its enforcement resources on examinations. Correspondence exams of individual tax returns, which target fewer and simpler compliance issues, are significantly less costly on average than the broader and more complex field exams. GAO estimated that the average cost (including overhead) of correspondence exams opened in 2007 and 2008 was $274, compared to an average of $2,278 for field exams. IRS spent almost 20 percent of the $1.6 billion per year that it devoted to exams on returns from taxpayers with positive income of at least $200,000, even though such returns accounted for only 3 percent of the 136 million individual returns filed per year. (Positive income, a measure that IRS uses to classify returns for exam planning purposes, disregards losses that may offset this income).

GAO estimated that, for the 2 years of cases reviewed, correspondence exams were significantly more productive in terms of direct revenue produced per dollar of cost than field exams. Both types of exams of taxpayers with positive incomes of at least $200,000 were significantly more productive than exams of lower-income taxpayers.

GAO demonstrated how these estimates could be used to inform resource allocation decisions. For example, a hypothetical shift of a small share of resources (about $124 million) from exams of tax returns in less productive groups shown in the figure to exams in the more productive groups could have increased direct revenue by $1 billion over the $5.5 billion per year IRS actually collected (as long as the average ratio of direct revenue to cost for each category of returns did not change). These gains would recur annually, relative to the revenue that IRS would collect if it did not change its resource allocation. This particular resource shift would not reduce exam coverage rates significantly and, therefore, should have little, if any, negative effect on voluntary compliance.

TIGTA Submits Semiannual Report to Congress

The Treasury Inspector General for Tax Administration yesterday submitted its Semiannual Report to Congress:

It is my honor to submit this Semiannual Report to Congress summarizing the accomplishments of the Treasury Inspector General for Tax Administration (TIGTA) for the reporting period of April 1, 2012 through September 30, 2012. This report highlights the most notable audits, investigations, and inspections and evaluations performed by TIGTA, as we continue to work diligently to provide oversight of the Internal Revenue Service (IRS) and protect the integrity of Federal tax administration. ...

Increasing voluntary taxpayer compliance and reducing the Tax Gap remain the focus of many IRS initiatives. Nevertheless, the IRS continues to face significant challenges in obtaining complete and timely compliance data and developing the methods necessary to interpret the data. Even with improved data collection, the IRS will need to develop broader strategies and conduct more research to determine which actions are most effective in addressing taxpayer noncompliance.

The IRS has also expanded its efforts to detect and prevent identity theft. However, the impact of identity theft on tax administration is significantly greater than the amount the IRS detects and prevents. TIGTA’s analysis of tax returns using characteristics of IRS-confirmed identity theft has identified approximately 1.5 million tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion. TIGTA estimates that the IRS could potentially issue $21 billion in fraudulent tax refunds over the next five years as a result of identity theft.

IRS Grants 501(c)(4) Tax-Exempt Status to Ohio Tea Party Group

Dayton Daily News:  IRS Rules Tea Party Group Is Tax-Exempt:

The IRS has ruled that a Tea Party affiliated organization in Ohio is exempt from federal taxes, concluding that the Ohio Liberty Council  is a non-profit organization. In a statement Tuesday announcing the IRS’s decision, Tom Zawistowski, president of the conservative-leaning Ohio Liberty Council — known as the OLC — predicted “our victory today will pave the way for other liberty groups around the nation to replicate our success’’

Ohio Libery Coalition Press Release:

After nearly two and a half years of fighting for its legal right to “tax exempt” status as a non-profit corporation, the Ohio Liberty Coalition was notified today by the IRS that the organization is indeed exempt from Federal Income Tax under section 501(c)(4) of the Internal Revenue Code.  For years, the IRS had been denying TEA Party and Liberty Groups across the nation a status that many unions and liberal groups had routinely been awarded. The OLC lead a national fight to protect the rights of these groups and was rewarded today with this IRS ruling.

Prior TaxProf Blog coverage:

• Senate Candidate Calls for Investigation of IRS 'Assault' on Tea Party (Feb. 24, 2012)
• IRS May Out Donors to Tea Party, Other 501(c)(4) Groups (Mar. 9, 2012)
• NY Times Backs IRS Efforts to Out Donors to Tea Party, Other 501(c)(4) Groups (Mar. 10, 2012)
• Why Is The IRS Asking Tea Party Groups If They Know Me? (Mar. 16, 2012)
• More on IRS, Tea Party Groups, and § 501(c)(4) Tax-Exempt Status (Mar. 24, 2012)
• House Demands IRS Documents on Alleged Harassment of Tea Party Groups (Apr. 12, 2012)
• It's Time to Investigate the IRS (May 23, 2012)

Why Will the IRS No Longer Collect Data on Taxpayer Migration From Blue States to Red States?

National Review:  An Embarrassing Metric Disappears:  Why Are Government Statistics on Taxpayer Migration Being Discontinued?:

As the din of America’s falling headfirst over the fiscal cliff reverberates across the nation, the Obama administration is quietly killing a key economic metric that tells how, and how many, people are voting with their feet. Since 1991 the IRS has been compiling statistics on filers’ addresses, which the agency’s Statistics of Income division uses to show who is moving into and out of every county and state in the nation. As you’d expect, the IRS also knows the aggregate income levels of those who move. So the movements of the most fundamental productive components of the economy — taxpayers — can be analyzed by journalists and economists, or could until now.

The IRS and the U.S. Census Bureau (which provides technical support in reporting tax migration data) have not made an official announcement as to why the program is being discontinued. So we are left to speculate why such vital economic statistics suddenly got canceled.

Some would be glad if the IRS data simply went away. Blue states with high state and local tax burdens have come out looking bad in recent years. California [, Maryland] and New York have been embarrassed publicly, as a steady exodus is underway from both. ...

While it remains to be seen what the official position of the IRS is, unofficially it is suggesting that the problem lies in coordinating with the Census Bureau. It is asking for comments on how people use the data and how important it is, presumably so that higher-ups at the agencies can reverse their decision if necessary.

The very idea of people voting with their feet is uncomfortable to some politicians. Fortunately, others realize the damage that a declining tax base causes and prefer transparency over attempting to delete statistics that reveal the problem.

Tax Attorneys Are in No Rush to Leave the IRS

Shamik Trivedi (Tax Analysts), As Economy Recovers, Attorneys Are in No Rush to Leave IRS, 137 Tax Notes 1147 (Dec. 10, 2012):

The chief counsel honors program is the primary way the IRS recruits entry-level attorneys. It accepts applications from third-year law students and graduating LLM students who have less than one year of post-JD legal work experience. According to the IRS, the program receives about 4,000 applications each year for positions available nationwide.

In the chief counsel's office in Washington, 10 to 20 law students and recent graduates are hired each year, the IRS said. ... A newly appointed attorney is expected to remain with the IRS for three years but can resign after the first year, according to the IRS's website. An early departure, however, may not be the best idea for an attorney seeking to one day return to the IRS. ...

Documents obtained by Tax Analysts showed that between 2004 and 2007, 57 attorneys were hired into the honors program in the chief counsel's office in Washington. Their average annual pay was $115,412, markedly less than what they could earn in the private sector but slightly higher than the national median wage for attorneys. ...

The gender of the attorneys was split almost evenly. Twenty-nine were male, and 28 were female. While the IRS did not provide information in the FOIA response about where the attorneys had gone to school, research conducted by Tax Analysts showed that attorneys with LLMs in taxation generally received the advanced degree from Georgetown University Law Center....

In the mid-2000s, the Office of Chief Counsel began trying to increase recruitment of talented law students. It dispatched then-Chief Counsel Donald Korb to dozens of law schools to pitch the benefits of working as an IRS attorney. Korb is credited with changing the office's recruitment procedures to mirror those of large law firms. ...

"When we started out, the theme was that the IRS was a great place to start your career," said Korb. But that changed quickly to "it was also a great place to build your career too," he said. "We wanted to focus not only on starting, but building a career over time. For a lot of people, that's exactly what it was."

The Service's goal was to recruit and retain talented lawyers, but even if they left after their three-year commitment, that wasn't so bad, Korb said. "We were trying to get the best people we could," he said. Even if attorneys left, they were well trained and understood how the government worked, he said, adding, "It would benefit the tax system as a whole."

Korb said he wasn't surprised that most of the honors attorneys were still with the IRS, even with the opportunity to go elsewhere. "The Office of Chief Counsel is a great place to work," said Korb, who began his own legal career as an honors attorney with the Service and is now a partner at Sullivan & Cromwell LLP.

All Tax Analysts content is available through the LexisNexis® services.

IRS Releases 159-Page Proposed Regs on New ObamaCare Medicare Taxes

The IRS has released a FAQ and 159 pages of proposed regulations on the new 3.8% surtax on investment income and the 0.9% tax increase on wages for high-income individuals enacted as part of the Affordable Care Act and scheduled to take effect on January 1, 2013.

• Forbes, Ten Things We Learned From The New Obamacare Investment Tax Regulations 
• Journal of Accountancy, Guidance Issued on Additional Medicare Tax
• Reuters, IRS Aims to Clarify Investment Income Tax Under Healthcare Law

For a detailed discussion of these new taxes, see Richard L. Kaplan (Illinois), Rethinking Medicare's Payroll Tax After Health Care Reform, 90 Taxes 55 (Aug. 2011).

Groups Charge IRS With 'Abdication of Responsibility' in Not Prioritizing 501(c)(4) Regs

Election Law Blog:  Democracy 21 and the Campaign Legal Center Charge the IRS With Indefensible Abdication of Responsibility, by Rick Hasen (UC-Irvine):

Press release: “In a letter sent to the Internal Revenue Service today, Democracy 21 and the Campaign Legal Center charged the IRS with an ‘indefensible abdication of responsibility” in failing’ ‘to include the section 501(c)(4) regulations dealing with political activity on the agency’s Priority Guidance Plan’ for the next twelve months.”

Progressive Tax Rates Peak at $2 Million Income

CNBC, The Millionaires Who Pay the Highest Tax Rate:

[N]ationally, the tax code is still broadly progressive. The more your make, the more taxes you pay as a percentage of your income. According to new data from the IRS, people who make $1 million or more had an average tax rate of 20.4% in 2010. Tax filers who earned $30,000 to $50,000 paid an average rate of 4.8%, while those who made between $50,000 and $100,000 paid 7.7%. Those making under $30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits. Put another way, millionaires pay a rate that’s more than four times that of the middle class.

One caveat: Rates go up as income goes up — but only to a point. Once you hit a certain magic number among super-high earners, your tax rates start to fall slightly. According to the IRS, average tax rates increase as income increases — until you get to around $1.5 million in annual income. Once you make $2 million, average tax rates start to decrease. The average tax rate peaks at 25.1% for those making between $1.5 million and $2 million.

After that it starts to go down, and falls to 20.7% for those making $10 million or more. So the millionaires who pay the highest average tax rates in America are those who make between $1.5 million and $2 million. That $2 million could be called the “Top Turning Point” on the income ladder, where rates reverse.

NY Times: IRS Challenges 'Synthetic Consolidation' Tax Shelter

New York Times:  Many Moons Later, the IRS Questions a Tax Deal, by Gretchen Morgenson:

The IRS works in mysterious ways. Its wheels grind slowly, but grind they do, as seen in the case of Fairfax Financial Holdings of Toronto.

Close readers of this column may recall that Fairfax, an insurer, received a sweet $400 million tax benefit through a complex transaction that ran from 2003 to 2006. Tax experts have questioned the deal for years, but Fairfax has defended it — as it did in this space in March.

Then, in a bolt from the blue, the IRS issued an opinion in June. In a memorandum providing generic legal advice to IRS agents [AM 2012-007 (June 27, 2012)], the service sided with the skeptics. It said that the terms of the transaction failed the most basic test required under tax laws to generate the $400 million benefit. ...

Robert Willens, an authority on accounting and tax law in New York, is among the skeptics on the transaction. Writing about the deal in Tax Notes in 2009 [Synthetic Consolidation: Tne Next Big Thing, 123 Tax Notes 1013 (May 25, 2009)], Mr. Willens said it had no business purpose and was “flawed” for the reasons recently cited by the IRS Fairfax criticized him and his article, calling it false and misleading.

In an interview last week, Mr. Willens said the legal advice published by the IRS was a surprise after all these years. Where it might lead is anybody’s guess.

(Hat Tip:  Ann Murphy, Mike Talbert.)

IRS Releases Fall 2012 SOI Bulletin

The IRS's Statistics of Income Division has released (IR-2012-97) the Fall 2012 SOI Bulletin (Vol. 32, No. 2), with these articles:

• Individual Income Tax Returns, 2010 (p.5), by Justin Bryan
• Partnership Returns, 2010 (p.79), by Nina Shumofsky, Lauren Lee & Ron DeCarlo
• Nonprofit Charitable Organizations, 2009 (p.169), by Paul Arnsberger
• Transactions Between Large Foreign- Owned Domestic Corporations and Related Foreign Persons, 2008 (p. 182), by Isaac J. Goodwin

IRS Releases 2013 Standard Mileage Rates

The IRS has released (IR-2012-95) the standard mileage rates for 2013 (Notice 2012-72):

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

• 56.5 cents per mile for business miles driven [up 1 cent from 2012]
• 24 cents per mile for medical or moving purposes [up 1 cent]
• 14 cents per mile for charitable organizations [unchanged]

Treasury & IRS Release 2012-13 Priority Guidance Plan

The Treasury Department and IRS yesterday released the 2012-2013 Priority Guidance Plan:

The 2012–2013 Priority Guidance Plan contains 317 projects that are priorities for allocation of the resources of our offices during the twelve-month period from July 2012 through June 2013 (the plan year). The plan represents projects we intend to work on actively during the plan year and does not place any deadline on completion of projects. Projects on the 2012–2013 plan will provide guidance on a variety of issues important to individuals and businesses, including international taxation, health care, and implementation of legislative changes.

TIGTA: Tax Preparers and IRS Agents May be Stealing Taxpayer Direct Deposit Refunds

The Treasury Inspector General for Tax Administration has released Processes for the Direct Deposit of Tax Refunds Need Improvement to Increase Accuracy and Minimize Fraud (2012-40-118):

In 2011, more than 842,000 taxpayers took advantage of this “split refund” option, which the IRS first offered in 2007. They may split their tax refunds between two to three different checking or savings accounts using Form 8888, Allocation of Refund (Including Savings Bond Purchases).

However, TIGTA found that more than 65,300 bank accounts had multiple direct deposits, accounting for more than 949,000 refunds for approximately $1.6 billion. Auditors found that current IRS processes to ensure the accuracy of direct deposit information are not sufficient, which increases fraud potential.

Additionally, the option to split a refund between multiple accounts increases the risk of fraud. ... TIGTA identified more than 4,400 bank accounts listed on tax return preparers’ personal tax returns that had multiple direct deposits. More than 202,000 refunds for more than $309 million were sent to these bank accounts. This raises a concern as to whether tax return preparers are diverting clients’ refunds or portions of refunds to their own bank accounts to pay tax preparation fees or for other reasons.

TIGTA also identified more than 200 bank accounts listed on IRS employees’ tax returns that had multiple direct deposits. More than 10,600 refunds for more than $14 million were sent to these bank accounts.

Group Sues IRS for Not Enforcing Electioneering Restrictions on Churches

The Daily Page:  Freedom From Religion Foundation Sues IRS for Not Enforcing Electioneering Restrictions on Churches:

On the heels of a presidential election in which hundreds of preachers publicly promised to flout IRS rules by endorsing candidates from the pulpit, the Madison-based Freedom From Religion Foundation filed suit against the IRS for failing to enforce electioneering restrictions against churches and religious organizations.

Filed in U.S. District Court for the Western District of Wisconsin, the lawsuit charges that Douglas Shulman, the commissioner of the IRS, "has violated, continues to violate and will continue to violate in the future, the Establishment Clause of the First Amendment to the Constitution of the United States by failing to enforce the electioneering restrictions of 501(c)(3) of the Tax Code against churches and religious organizations." ...

In a news release, the Freedom from Religion Foundation refers to a Bloomberg BNA story in which Russell Renwicks, an employee with the IRS's Tax-Exempt and Government Entities division, was quoted as saying the agency had suspended doing tax audits of churches. The release notes an IRS spokesman later claimed that Renwicks "misspoke," but adds that there "appears to be no evidence of IRS inquiries or action in the past three years."

• Huffington Post
• Philadelphia Post
• Washington Post
• Washington Times

(Hat Tip:  Kristin Hickman.)

Alm & Soled: 60% of Taxpayers Cheat on Deductions for Business-Related Car Expenses

New York Times op-ed:  Filling Up on Your Dime, by James Alm (Tulane) & Jay Soled (Rutgers):

The next time you fill up your tank, you should know that the person next to you might be paying much less than you for gasoline. By reporting their personal automobile use as a business expense, millions of drivers are essentially getting taxpayer subsidies for their gasoline.

The tax code treats expenses incurred in the “ordinary and necessary” course of doing business as tax-deductible, including costs like gasoline, tolls, parking and vehicle depreciation. Consider a salesman visiting a client or a lawyer driving from her office to court. Depending on factors like her tax filing status, whether she itemizes her deductions, and whether she is self-employed, her savings could be as much as 35% — or $1.20 for every $3.50 of gasoline.

The deduction can’t be taken for personal auto usage, like grocery trips, vacation travel and, importantly, commuting. But about 10 million drivers break these rules every year, according to the IRS. More than 60% of the 16 million taxpayers who claim business-related auto expenses each year do so inaccurately. Some errors benefit the government, as when taxpayers mistakenly classify business-related expenses as personal ones. But the net result is a loss of about $6 billion in annual tax revenue....

What can be done? Congress can start by simplifying the deductibility rules and exceptions that currently confront drivers. It should also require more detailed expense reporting by taxpayers who use their cars for work; institute stricter requirements for write-offs; cap total auto-related deductions; and stiffen penalties for violators. (Thanks to technology, keeping track of business-related auto travel is far easier now than it was in the 1980s.) Congress might even go further and limit deductible car expenses to employers who actually own the vehicles in question and use them almost exclusively for business. These measures might be unpalatable, especially to some small-business owners, but they deserve examination.

Beyond the revenue, there is the matter of fairness. Americans who are already struggling to cover their commuting costs shouldn’t have to pay even more at the pump to subsidize those motorists who are filling up on their dime.

(Hat Tip: Mike Talbert.

GAO: IRS Lacks Adequate Internal Controls

The Government Accountability Office today released IRS’s Fiscal Years 2012 and 2011 Financial Statements:

In GAO’s opinion, the IRS fiscal years 2012 and 2011 financial statements are fairly presented in all material respects. However, in GAO’s opinion, IRS did not maintain effective internal control over financial reporting as of September 30, 2012, because of a material weakness in internal control over unpaid tax assessments. In addition, GAO found that IRS’s financial management systems were not in substantial compliance with Federal Financial Management Improvement Act of 1996 (FFMIA) requirements because of the systems issues underlying the material weakness. ... In addition to its internal control deficiencies, IRS faces significant ongoing financial management challenges arising from its continued need to safeguard the large volume of sensitive hard copy taxpayer receipts and related information and to address its exposure to significant improper refunds based on identity theft. Sustained management efforts will be necessary to maintain and build on the progress made to date and to fully address IRS’s remaining internal controls and systems deficiencies as well as its financial management challenges.

Judge Allows $975m of NOLs to Flow to Solyndra's Owners After Bankruptcy

Following up on my previous posts (links below):  Bloomberg, IRS Loses Appeal to Stop Solyndra From Carrying Out Plan:

The IRS lost its request to delay Solyndra from carrying out its restructuring plan while the agency appeals a bankruptcy judge’s approval of the failed solar-panel maker’s plan to exit court protection.

The IRS was denied its bid for a so-called “stay” to keep Solyndra, which received a $535 million U.S. Energy Department loan guarantee before going bankrupt, from implementing its plan which the government claims will make its appeal moot because it would be too difficult to undo afterward. ...

[Judge] Walrath approved the plan last month over the government’s objection that it couldn’t be approved because the principal purpose of the plan was to allow Argonaut Ventures I and Madrone Partners, Solyndra’s plan sponsors and indirect owners, to avoid taxes.

Under the plan, Solyndra will be liquidated while its parent, 360 Degree Solar Holdings, will exit court protection with so-called net operating loss carryforwards of as much as $975 million, which it may use against future income, according to court papers. The potential tax breaks may be as much as $341 million for 360 Degree investors Argonaut and Madrone.

 Prior TaxProf Blog coverage:

• IRS Objects to Solyndra's Bankruptcy Plan, Says Owners Manipulated Rules to Preserve $975m of NOLs (Oct. 12, 2012)
• WSJ: Taxpayers Will Lose Twice if Bankruptcy Court Allows Solyndra Insiders to Harvest $975m of NOLs (Oct. 16, 2012)

IRS Under Obama Has Not Enforced Law Against Politicking by Churches

Huffington Post:  Religion And Politics: IRS Not Enforcing Rules on Separation of Church and State:

For the past three years, the IRS hasn't been investigating complaints of partisan political activity by churches, leaving religious groups who make direct or thinly veiled endorsements of political candidates unchallenged.

The IRS monitors religious and other nonprofits on everything from salaries to spending, and that oversight continues. However, Russell Renwicks, a manager in the IRS Mid-Atlantic region, recently said the agency had suspended audits of churches suspected of breaching federal restrictions on political activity. A 2009 federal court ruling required the IRS to clarify which high-ranking official could authorize audits over the tax code's political rules. The IRS has yet to do so.

Dean Patterson, an IRS spokesman in Washington, said Renwicks, who examines large tax-exempt groups, "misspoke." Patterson would not provide any specifics beyond saying that "the IRS continues to run a balanced program that follows up on potential noncompliance."

However, attorneys who specialize in tax law for religious groups, as well as advocacy groups who monitor the cases, say they know of no IRS inquiries in the past three years into claims of partisanship by houses of worship. IRS church audits are confidential, but usually become public as the targeted religious groups fight to maintain their nonprofit status.

"The impression created is that no one is minding the store," said Melissa Rogers, a legal scholar and director of the Center for Religion and Public Affairs at Wake Forest University Divinity School in North Carolina. "When there's an impression the IRS is not enforcing the restriction — that seems to embolden some to cross the line." ...

In a survey last week by the Pew Forum on Religion and Public Life, 40% of black Protestants who attend worship services regularly said their clergy have discussed a specific candidate in church — and the candidate in every instance was President Barack Obama.

(Hat Tip: Bob Kamman, Ann Murphy, Mike Talbert.)

Names of U.S. Expatriates Released for 3rd Quarter 2012

The Treasury Department today published the names of 238 individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) in the third quarter of 2012. Andrew Mitchel has updated his chart of the number of U.S. expatriates since January 1, 2005:

IRS = Income Redistribution Service

Real Clear Politics:  IRS: The Small Business Bully:

President Barack Obama and Governor Mitt Romney continue to tussle over tax rates and deductions. Ignored, however, have been questions about tax collection and enforcement — tools presidents use to achieve their economic policy goals. Hit a wall ramming your tax hike or cut through Congress, simply increase or decrease tax enforcement and audits.

Under the Obama Administration, the IRS has placed small and medium-size businesses — the engines of job creation — in its auditing crosshairs.

According to IRS statistics, from 2009 to 2011, the coverage rate (number of audits as a percentage of total returns filed) for corporations with assets between $10 million and $50 million has increased 32%. The coverage rate for corporations with assets between $50 million and $100 million has increased at the same rate. Some businesspeople file individual returns, and those with incomes higher than $1 million have experience a 94% increase in their coverage rate, and a 29% increase in the actual number of exams since 2009. Those with incomes $200,000 and higher have seen a 36% increase in their coverage rate.

So, has ratcheting up audits on small and medium-size businesses produced more revenue bang for the IRS’s buck? Hardly.

Using 2011 IRS data, the Transactional Records Access Clearinghouse (TRAC) at Syracuse University found that audits of a company with assets between $10 and $50 million yielded $702 in recommended additional taxes per hour. For large corporations with assets of $250 million or more, the recommended additional taxes are $9,173 per hour. Yet while the coverage rates of companies with assets between $10 to $50 million are up 32%, rates for companies with assets of $250 million or higher are up just 7.4%.

In short, for every hour the IRS spends auditing a small or medium business, it would have recouped $8,471 more dollars auditing a large corporation. Nevertheless, the IRS continues to aggressively increase audits on small and medium companies over their larger counterparts. ...

Tax collections and enforcement can be just as redistributive as tax rates. As the numbers show, the IRS is increasingly placing job creators under the auditing hatchet while shirking oversight of the billions in new tax credits flowing to those claiming low-income status.

Put simply, the Internal Revenue Service is morphing into the Internal Redistribution Service.

IRS Sells Confidential Information of 850,000 Tax Preparers for $35

The IRS yesterday issued IR-2012-79:

The IRS today reminded the nation’s 730,000 federal tax return preparers that they must renew their Preparer Tax Identification Numbers (PTINs) for 2013. Also, preparers who have a competency test requirement should take the time now to schedule an appointment for the exam.

Anyone who is a paid federal tax return preparer must register with the IRS and have a PTIN, as must all Enrolled Agents. Additionally, some return preparers have new continuing education and competency test requirements.

Also yesterday, Atlanta CPA Jay Starkment sent this letter objecting to the IRS's sale of confidential information:  

I have just submitted my 2013 Form W12 (Rev. September 2012) application to renew my PTIN (on paper, of course).

The instructions contain a misleading and erroneous Privacy Act Notice which reads: Generally, the information you provide on this form is confidential pursuant to the Privacy Act of 1974 and tax returns and return information are confidential pursuant to Code section 6103.

Meanwhile, the IRS website on August 4, 2012, began selling Form W12 information – apparently all 850,000 PTIN holders – including email addresses, phone numbers, professional credentials, and websites on a CD for just $35. IRS even offers an option for ordering a “customized listing” at additional cost. ...

I get enough spam and robocalls without having IRS contribute to such disturbances. I will urge my fellow tax preparers that the only way to omit their email address and phone number is to apply on paper.

IRS Releases 2013 Inflation-Adjustments

The IRS today released various inflation-adjustments for 2013 (IR-2012-77; IR-2012-78; Rev. Proc. 2012-41, 2012-45 I.R.B. ___ (Nov. 5, 2012)), including:

• Gift Tax Exemption:  $14,000 (up $1,000 from 2012)
• Contribution Limit for 401(k)/403(b)/457 Plans:  $17,500 (up $500 from 2012)
• Catch-Up Contribution Limit (Age 50+) for 401(k)/403(b)/457 Plans:  $5,500 (same as 2012)
• Income Limit for Full IRA Deduction:  $59,000 single/$95,000 joint (up $1,000/$3,000 from 2012)
• Income Limit for Full Roth IRA Contribution:  $112,000 single/$178,000 joint (up $2,000/$5,000 from 2012)
• Defined Benefit Plan Annual Benefit Limit:  $205,000 (up $5,000 from 2012)

TIGTA: IRS Unjustifiably Withholds $181 Million in Relief from Tax Penalties from 1.5 Million Taxpayers

The Treasury Inspector General for Tax Administration yesterday released Penalty Abatement Procedures Should Be Applied Consistently to All Taxpayers and Should Encourage Voluntary Compliance (2012-40-113):

The Internal Revenue Code imposes a Failure to File (FTF) penalty for failing to file a tax return and a Failure to Pay (FTP) penalty for failing to pay the tax shown on any tax return by the date prescribed.  The IRS can abate both penalties under certain circumstances.  If the IRS does not administer these and other penalties fairly and accurately, taxpayers’ confidence in the tax system will be jeopardized. 

The IRS waives FTF and FTP penalties for some taxpayers who have demonstrated full compliance over the prior three years. The purpose for granting the waiver, called a First-Time Abate (FTA), is to reward past tax compliance and promote future tax compliance. However, most taxpayers with compliant tax histories are not offered and do not receive the FTA waiver. TIGTA estimated that for Tax Year 2010, approximately 250,000 taxpayers with FTF penalties and 1.2 million taxpayers with FTP penalties did not receive penalty relief even though they qualified under FTA waiver criteria. TIGTA estimated the unabated penalties totaled more than $181 million.

TIGTA: IRS's Failure to Timely Process NOL Claims Costs $334 Million/Year in Avoidable Interest Charges

The Treasury Inspector General for Tax Administration yesterday released Delays in Processing Net Operating Loss Cases Resulted in Millions of Dollars in Unnecessary Interest Payments (2012-40-111):

Taxpayers who encounter significant financial losses could be in a situation where their deductions exceed their income, creating a net operating loss (NOL) that can be applied against prior year taxes. Interest is paid to the taxpayer if the IRS does not process an NOL case within 45 days. The IRS pays millions of dollars in interest payments annually because many NOL cases are not processed within 45 days. ... A test of a statistical sample of 334 of 86,483 NOL carryback tax abatements that posted to individual taxpayer accounts during Calendar Year 2010 showed 64 (19%) were not processed within 45 days. TIGTA estimates that the IRS could pay approximately $334 million of avoidable interest payments and delay payment to more than 74,000 individual taxpayer accounts in the next five years due to delays with processing NOL cases.

IRS Objects to Solyndra's Bankruptcy Plan, Says Owners Manipulated Rules to Preserve $975 Million in NOLs

Washington Times:  IRS Says ‘Tax Avoidance’ at Heart of Solyndra Bankruptcy Plan:

The IRS urged a bankruptcy judge to reject solar panel maker Solyndra LLC’s bankruptcy plan Wednesday, saying it amounts to little more than an avenue for owners of an empty corporate shell to avoid paying taxes. “The undeniable conclusion is that tax benefits drive this plan,” attorneys for the IRS wrote in a bankruptcy pleading.

Arguing that the bankruptcy court ought not confirm a plan “whose principal purpose is tax avoidance,” attorneys said in filings in U.S. Bankruptcy Court in Delaware that the tax breaks would be worth more money than funds set aside for creditors.

Taxpayers are on the hook for more than a half-billion dollars after the company filed for bankruptcy last year, just two years after winning a loan guarantee from the Department of Energy.

What’s more, government attorneys said that as far back as 2010, Solyndra owners had “planned meticulously” to be able to use Solyndra’s net operating losses to offset future tax liabilities. “The only reason for the shell corporation to exist post-confirmation is to enable its owners to exploit these tax attributes, which would be lost in liquidation,” the IRS argued in court papers. One owner valued the so-called tax attributes at $150 million, dwarfing the $7 million to $8 million set aside by the reorganization plan for unsecured creditors, according to the government’s objection, which was filed by the Justice Department on behalf of the IRS.

• Bloomberg, Solyndra Bankruptcy Plan is Opposed by IRS, Energy Dept.
• The Hill, IRS Slams Solyndra Bankruptcy Plan
• Reuters, Solyndra Investor Sought Tax Breaks as Bankruptcy Loomed-Filing
• Washington Post, Attorneys for IRS, Energy Department Object to Solyndra Bankruptcy Plan

(Hat Tip: InstaPundit.)

IRS Commissioner Doug Shulman to Step Down Nov. 9

IR-2012-76:

The IRS today announced that Doug Shulman, the 47th commissioner of the Internal Revenue Service, has decided to step down on Nov. 9, the last day of his term. Shulman indicated earlier this year that he planned to step down at the end of his term.

Shulman has served as IRS Commissioner since March 24, 2008. Under the law, IRS commissioners are nominated by the President and confirmed by the Senate for a term of up to five years with their terms ending on Nov. 12 of their final year (Nov. 9 is the last work day of Shulman's term because Nov. 12 is a federal holiday). ...

Deputy Commissioner for Services and Enforcement Steven T. Miller, who is a 25-year veteran of the IRS, will serve as acting IRS Commissioner when Shulman steps down.

• Bloomberg
• The Hill
• New York Times
• Reuters
• Washington Post

IRS: Obama Has Not Requested Disclosure of Tax Returns 'Under § 6103(g) During Period in Question'

Washington Examiner:  Non-profit Wants to Know If Obama Asked IRS for Anybody's Tax Returns:

An independent non-profit group has asked a federal court to order the IRS to release documents concerning any requests the agency received from President Obama for the tax returns of any individual or business. ...

A spokesman for Cause of Action said the IRS could simply have claimed that it had no documents that would be responsive to the FOIA. But the IRS merely denied access to documents Cause of Action requested, which suggests there are such documents.

UPDATE: IRS say it got no Obama requests

A spokesman for the IRS tells The Washihngton Examiner that the agency received no requests from Obama for tax returns:

The IRS does not comment on pending litigation," said Michelle Eldridge. "However, the IRS can confirm that no requests were made, and no tax returns or return information have been disclosed under Internal Revenue Code 6103 (g) during the period in question."

Eldridge added that "federal law provides under Internal Revenue Code 6103 (g) a provision for the President of the United States to request and receive federal tax return information."

I.R.C. § 6103(g) Disclosure to President and certain other persons

(1) In general

Upon written request by the President, signed by him personally, the Secretary shall furnish to the President, or to such employee or employees of the White House Office as the President may designate by name in such request, a return or return information with respect to any taxpayer named in such request. Any such request shall state—

(A) the name and address of the taxpayer whose return or return information is to be disclosed,

(B) the kind of return or return information which is to be disclosed,

(C) the taxable period or periods covered by such return or return information, and

(D) the specific reason why the inspection or disclosure is requested.

(2) Disclosure of return information as to Presidential appointees and certain other Federal Government appointees

The Secretary may disclose to a duly authorized representative of the Executive Office of the President or to the head of any Federal agency, upon written request by the President or head of such agency, or to the Federal Bureau of Investigation on behalf of and upon written request by the President or such head, return information with respect to an individual who is designated as being under consideration for appointment to a position in the executive or judicial branch of the Federal Government. Such return information shall be limited to whether such individual—

(A) has filed returns with respect to the taxes imposed under chapter 1 for not more than the immediately preceding 3 years;

(B) has failed to pay any tax within 10 days after notice and demand, or has been assessed any penalty under this title for negligence, in the current year or immediately preceding 3 years;

(C) has been or is under investigation for possible criminal offenses under the internal revenue laws and the results of any such investigation; or

(D) has been assessed any civil penalty under this title for fraud.

Within 3 days of the receipt of any request for any return information with respect to any individual under this paragraph, the Secretary shall notify such individual in writing that such information has been requested under the provisions of this paragraph.

(3) Restriction on disclosure

The employees to whom returns and return information are disclosed under this subsection shall not disclose such returns and return information to any other person except the President or the head of such agency without the personal written direction of the President or the head of such agency.

(4) Restriction on disclosure to certain employees

Disclosure of returns and return information under this subsection shall not be made to any employee whose annual rate of basic pay is less than the annual rate of basic pay specified for positions subject to section 5316 of title 5, United States Code.

(5) Reporting requirements

Within 30 days after the close of each calendar quarter, the President and the head of any agency requesting returns and return information under this subsection shall each file a report with the Joint Committee on Taxation setting forth the taxpayers with respect to whom such requests were made during such quarter under this subsection, the returns or return information involved, and the reasons for such requests. The President shall not be required to report on any request for returns and return information pertaining to an individual who was an officer or employee of the executive branch of the Federal Government at the time such request was made. Reports filed pursuant to this paragraph shall not be disclosed unless the Joint Committee on Taxation determines that disclosure thereof (including identifying details) would be in the national interest. Such reports shall be maintained by the Joint Committee on Taxation for a period not exceeding 2 years unless, within such period, the Joint Committee on Taxation determines that a disclosure to the Congress is necessary.

TIGTA: IRS Does Not Effectively Process 100,000 Tax Fraud Reports Each Year

The Treasury Inspector General for Tax Administration today released The Process for Individuals to Report Suspected Tax Law Violations Is Not Efficient or Effective (2012-40-106):

The IRS website for reporting fraud was visited 501,218 times in Fiscal Year 2011, and during that year 116,307 individuals submitted a Form 3949‑A, Information Referral, to the IRS. The IRS is not efficiently or effectively processing these referrals. ...

Reporting guidelines provided to taxpayers and employees are confusing and inconsistent.  Instructions on Form 3949‑A do not explain what types of fraud and tax law violations to report using this form.  As a result, individuals often use Form 3949‑A for purposes other than reporting suspected tax fraud or tax law violations.  Additionally, because Form 3949‑A lacks specificity, taxpayers do not always provide the IRS with sufficient information for the IRS to take action.  Finally, the IRS routes identity theft referrals received on a Form 3949‑A as regular correspondence, which delays actions from being taken on identity theft cases.

As a result, many referrals do not meet any criteria under which the IRS could or would be able to take action(s). A lack of quality review resulted in referrals being destroyed. Additionally, the forms are often used for other purposes (e.g., claims by victims of identity theft). About 3,000 Forms 3949‑A used to report identity theft were destroyed due to a lack of procedures on how to process these claims. Victims were not notified.

Ineffective routing procedures and oversight have allowed Forms 3949-A to be misrouted to the wrong functions.  Others are mistakenly considered unworkable and retained for 90 days and then destroyed. 

Jost: ObamaCare Authorizes IRS Rule Expanding Premium Tax Credits

Timothy Stoltzfus Jost (Washington & Lee), The Internal Revenue Service’s Implementation and Administration of the Democrat’s Health Care Law:

In a widely publicized paper, Jonathan Adler and Michael Cannon claim that the Affordable Care Act does not authorize federal exchanges to offer premium tax credits and that an IRS rule allowing them to do so is illegal. It is clear that Congress in fact intended all exchanges, including federal exchanges, to issue premium tax credits. Moreover, the language Cannon and Adler point to in the ACA as supporting their position, when read in context, does not preclude federal exchange premium tax credits. Timothy Jost’s testimony submitted to the House Ways and Means Committee explains why the IRS position is correct.

TIGTA: IRS Agents Lack Adequate Training in Use of Firearms

The Treasury Inspector General for Tax Administration today released Criminal Investigation’s Firearms Training and Qualification Policies Need to Be Clarified (2012-30-104):

In performing the IRS’s law enforcement mission, Criminal Investigation (CI) special agents may be called upon to execute search warrants and arrest those suspected of violating the U.S. tax laws and other Federal statutes over which the IRS has jurisdiction. When performing their duties, special agents carry firearms and are authorized to use deadly force to protect themselves and the public. Suspected criminals, who face the prospect of incarceration, may violently resist arrest regardless of how minor the crime may seem. CI special agents must be fully prepared to respond with force when necessary. Special agents not properly trained in the use of firearms could endanger the public, as well as their fellow special agents, and expose the IRS to possible litigation over injuries or damages.

CI’s firearms training and qualification requirements generally met or exceeded those of other Federal law enforcement agencies. However, TIGTA found that some CI special agents did not meet all firearms training and qualification requirements. Field office management did not always take consistent and appropriate actions when a special agent failed to meet the requirements because the guidance is vague. In addition, there is no national-level review of firearms training records to ensure that all special agents meet the qualification requirements. TIGTA also found that firearm discharge incidents were not always properly reported and that remedial training was not always required after accidental discharges due to special agent negligence. Lastly, procedures for securing a firearm after a discharge are not adequate.

Former IRS Agent Charged With Leaking Whistleblower's Name to Bank He Went to Work For

• CNN
• Forbes
• Reuters
• New York Times

Katz: The IRS's Offer-in-Compromise Program

I. Jay Katz (Widener), An Offer in Compromise You Can't Confuse: It Is Not the Opening Bid of a Delinquent Taxpayer to Play Let's Make a Tax Deal with the Internal Revenue Service, 81 Miss. L.J. 1673 (2012):

The purpose of this Article is to explain how the Offer process has evolved into what it is today, i.e., a collection alternative that is by no means a panacea for the delinquent taxpayer, by chronicling and analyzing every relevant major development from the infancy of federal income taxation to the present day.

TIGTA: 88 Federal Agencies Have Not Paid Employment Taxes or Filed Returns

The Treasury Inspector General for Tax Administration today released A Concerted Effort Should Be Taken to Improve Federal Government Agency Tax Compliance (2012-30-094):

Federal agencies are exempt from paying Federal income taxes; however, they are not exempt from meeting their employment tax deposits and related reporting requirements. As of December 31, 2011, 70 Federal agencies with 126 delinquent tax accounts owed approximately $14 million in unpaid taxes. In addition, 18 Federal agencies had not filed or were delinquent in filing 39 employment tax returns. Federal agencies should be held to the same filing and paying standards as all American taxpayers.

IRS Releases Summer 2012 SOI Bulletin

The IRS's Statistics of Income Division yesterday released (IRS-2012-71) the Summer 2012 SOI Bulletin (Vol. 32, No. 1), with these articles:

• Sole Proprietorship Returns, 2010 (p. 5), by Adrian Dungan
• Partnership and Sole Proprietorship Data (p. 71), by Region and State for Tax Years 2007–2009, by Suet Boudhraa
• Foreign-Controlled Domestic Corporations, 2009 (p. 83), by James R. Hobbs
• Corporate Foreign Tax Credit, 2008 (p. 128), by Melissa Costa

TIGTA: IRS Needs to Improve Telephone Service to Taxpayers Being Audited

The Treasury Inspector General for Tax Administration today released Improved Toll-Free Telephone Services Should Make It Easier for Taxpayers to Obtain Assistance During a Correspondence Audit (2012-30-093):

The Intelligent Contact Management System is a toll-free call routing system that the Small Business/Self-Employed (SB/SE) Division incorporated into its correspondence audit process to make it more responsive and less burdensome from the taxpayer’s point of view. However, the SB/SE Division is not consistently returning telephone calls to taxpayers and needs to take action to increase the likelihood of achieving the expected benefits of the new telephone system. ... TIGTA also found that examiners are trained and monitored to ensure they provide accurate information to taxpayers, but they do not consistently return calls when requested by or promised to taxpayers. TIGTA identified 20 calls during which the taxpayer either requested a return call or was promised one from a statistical sample of calls the SB/SE Division received from October 31 through December 9, 2011. For 14 of the 20 calls, there was no evidence that the call was returned.

Update:  Going Concern:  Audit Finds That IRS Small Business Division Not So Different From That Attractive Person at the Bar That Seemed Really Interested in You

TIGTA: Tax Returns Prepared Through IRS's Volunteer Assistance Program had 51% Error Rate

The Treasury Inspector General for Tax Administration yesterday released Ensuring the Quality Review Process Is Consistently Followed Remains a Problem for the Volunteer Program (2012-40-088):

The Volunteer Program provides no‑cost Federal tax return preparation and electronic filing to underserved segments of individual taxpayers, including low‑ to moderate‑income, elderly, disabled, and limited‑English‑proficient taxpayers. However, preparing accurate tax returns remains a challenge for the Volunteer Program. ... The accuracy rates of tax returns prepared for our auditors at IRS Volunteer Program sites increased from 39% in the 2011 Filing Season to 49% in the 2012 Filing Season. Three of 16 tax topics tested contributed the most errors—the deductions for Educator Expenses, IRA contributions, and small business expenses.

IRS Awards $104 Million to UBS Tax Whistleblower Bradley Birkenfeld

• IRS Whistleblower Award to Bradley Birkenfeld
• Press Release
• ABA Journal
• Bloomberg
• CNBC
• Corporate Crime Reporter
• New York Daily News
• New York Times
• Reuters
• Wall Street Journal
• Washington Post

CRS: Political Ads and the Tax Code

Via Election Law Blog and Bloomberg BNA:  Congressional Research Service, Political Ads: Issue Advocacy or Campaign Activity Under the Tax Code? (R42684) (Aug. 29, 2012):

The question of whether an advertisement has crossed the line into campaign activity is an important one under the tax laws, particularly for tax-exempt 501(c) organizations. There are two main reasons. First, 501(c)(3) charitable organizations (including churches and other houses of worship) are prohibited under the Internal Revenue Code (IRC) from engaging in campaign activity. They are, however, permitted to take policy positions and engage in an insubstantial amount of lobbying. Second, other types of 501(c)s—primarily 501(c)(4) social welfare organizations, 501(c)(5) labor unions, and 501(c)(6) trade associations—may engage in campaign activity. However, it (along with any other non-exempt purpose activity) cannot be their primary activity. This standard has been the focus of congressional and public scrutiny, as 501(c) groups have reportedly spent millions of dollars on campaign activity in the post-Citizens United era, and allegations have been made that some should have their status revoked for engaging in too much campaign activity. Whether an advertisement is campaign activity is key in this context because a “true” issue ad, as defined for tax purposes, would not be counted as campaign activity when determining whether revocation of 501(c) status is appropriate.

The standard for determining whether something is campaign activity under the IRC is whether it exhibits a preference for or against a candidate. Clearly, ads that tell people who to vote for or against are campaign intervention. However, in situations involving something short of express advocacy, this standard does not lend itself to bright-line rules. Preference can be subtle, and the IRS takes the position that it is not always necessary to expressly mention a candidate by name. As a result, the line between issue advocacy and campaign activity can be difficult to discern.

The IRS has released two rulings that provide a non-exhaustive list of factors the agency considers when determining whether an issue advocacy communication is electioneering. [Rev. Rul. 2004-6, 2004-1 C.B. 328; Rev. Rul. 2007-41, 2007-1 C.B. 1421.] The most important point to keep in mind is that the determination of whether an ad is actually campaign activity is entirely dependent on the facts and circumstances of each case. This requires looking at the ad in question, as well as being familiar with some of the organization’s other activities (e.g., has the group run a series of similar ads?) and the election (e.g., has the issue been raised to distinguish among the candidates?).

Finally, the term “issue advocacy” is also used when people talk about campaign finance law and policy. The terminology used in tax and campaign finance law and policy do not always match. Thus, it should not be assumed that the characterization or treatment of an activity for campaign finance purposes necessarily results in the same characterization or treatment for tax purposes, and vice versa.

NY Times: IRS Interpretation of ObamaCare May Put Health Insurance Out of Reach for Many Families

New York Times:  Ambiguity in Health Law Could Make Family Coverage Too Costly for Many:

The new health care law is known as the Affordable Care Act. But Democrats in Congress and advocates for low-income people say coverage may be unaffordable for millions of Americans because of a cramped reading of the law by the administration and by the IRS in particular.

Under rules proposed by the service, some working-class families would be unable to afford family coverage offered by their employers, and yet they would not qualify for subsidies provided by the law.

The fight revolves around how to define “affordable” under provisions of the law that are ambiguous. The definition could have huge practical consequences, affecting who gets help from the government in buying health insurance. Under the law, most Americans will be required to have health insurance starting in 2014. Low- and middle-income people can get tax credits and other subsidies to help pay their premiums, unless they have access to affordable coverage from an employer. The law specifies that employer-sponsored insurance is not affordable if a worker’s share of the premium is more than 9.5 percent of the worker’s household income.

The IRS says this calculation should be based solely on the cost of individual coverage for the employee, what the worker would pay for “self-only coverage.” Critics say the administration should also take account of the costs of covering a spouse and children because family coverage typically costs much more.

In 2011, according to an annual survey by the Kaiser Family Foundation, premiums for employer-sponsored health insurance averaged $5,430 a year for single coverage and $15,070 for family coverage. The employee’s share of the premium averaged $920 for individual coverage and more than four times as much, $4,130, for family coverage. Under the IRS proposal, such costs would be deemed affordable for a family making $35,000 a year, even though the family would have to spend 12% of its income for full coverage under the employer’s plan.

(Hat Tip: Mike Talbert.)

IRS Releases 2010 Individual Income Tax Return Data

The IRS's Statistics of Income Division yesterday released Individual Income Tax Returns 2010 (Publication 1304):

• Section 1 - Introduction and Changes in Law - In this section you will find information on filing requirements, changes in law, the 1979 income concept, and a comparison of adjusted gross income with the 1979 income concept
• Section 2 - Description of the Sample - In this section you will find the following information concerning the sample: domain of study, sample design and selection, data capture and cleaning, method of estimation, sampling variability and confidence intervals, and table presentation.
• Section 3: Basic Tables - The statistical tables found in this section are broken into the following groupings:
  Returns Filed and Sources of Income
  Exemptions and Itemized Deductions
  Tax Computation
• Section 4 - Explanation of Terms - This section is designed to clarify the statistical content of this report. The definitions and explanation provide background or limitations to the titles used in the tables.
• Table A - Selected Income and Tax Items for Selected Years, in Current and Constant 1990 Dollars

TIGTA: IRS Ordered Agents to Ignore Fraud in Issuing $6.8 Billion in Tax Refunds to Individuals Without Social Security Numbers

The Treasury Inspector General for Tax Administration yesterday released Substantial Changes Are Needed to the Individual Taxpayer Identification Number Program to Detect Fraudulent Applications (2012-42-081):

In Calendar Year 1996, the IRS created the Individual Taxpayer Identification Number (ITIN) so that individuals who are not eligible to obtain Social Security Numbers could obtain an identification number for tax purposes.  However, IRS management has not established adequate internal controls to detect and prevent the assignment of an ITIN to individuals submitting questionable applications.  A lack of adequate controls over the processing of ITIN applications can result in the improper assignment of ITINs to individuals who have not substantiated their identity or foreign status, which can result in fraudulent tax returns.  Controls are important because of the volume of returns processed.  In Processing Year 2011, the IRS processed more than 2.9 million ITIN tax returns resulting in tax refunds of $6.8 billion.

This audit was initiated because TIGTA received IRS employee complaints referred from members of Congress alleging that IRS management responsible for overseeing the ITIN operation was encouraging employees to assign ITINs to applicants when the ITIN application was fraudulent.  The objective of our review was to assess the efficiency and effectiveness of the IRS’s process to identify questionable ITIN applications.

TIGTA substantiated many of the allegations set forth in the IRS employees’ complaints.  The complaints alleged that IRS management is not concerned with addressing questionable applications and is interested only in the volume of applications that can be processed, regardless of whether they are fraudulent.

The audit found that the ITIN application review and verification process is so deficient that there is no assurance that ITINs are not being assigned to individuals submitting questionable applications.  Because of lax documentation requirements to obtain an ITIN, tax fraud can go undetected.  Management also eliminated successful processes used to identify questionable ITIN application fraud patterns and schemes.

The IRS also allows Certifying Acceptance Agents to review and verify the identity of individuals applying for an ITIN.  This designation enabled some individuals to commit ITIN application fraud because these individuals do not have to send documentation supporting the application to the IRS.

• Bloomberg:  IRS Allowed Fraud in Rush to Issue ID Numbers, Audit Says

Republican Senators Urge IRS to Resist Political Pressure From Democrats on 501(c)(4) Groups

Press Release:

After the IRS signaled its intent to consider proposed changes to the tax treatment of non-profit 501(c)(4) organizations, 10 Senators today asked IRS Commissioner Shulman to clarify the agency’s intentions for the 52-year-old regulation.  In a letter led by U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, the lawmakers questioned the IRS’s response to a public rulemaking petition from outside groups pressuring the agency to take action on 501(c)(4)s and said it was essential that politics not play any role in its decision-making process.

“We believe these petitions have less to do with concerns about the sanctity of the tax code and more about setting the tone for the upcoming presidential election, and we urge you to resist allowing the IRS rulemaking process to be subverted to achieve partisan political gains,” wrote the Senators.

On July 17th in a letter to petitioners, the IRS said it “was aware of the public interest” in 501(c)(4)s and that it “will consider proposed changes,” raising questions on whether the agency has already started a an internal process to amend its regulations.

The Senators continued, “Your acknowledgement of the political character of the public interest in 501(c)(4) organizations would caution against sudden changes to well-established law.  Yet, your letter seems to suggest that outside political pressure is actually what is triggering your agency’s considering of changes to the law.”

Joining Hatch on the letter are Senators Chuck Grassley (R-Iowa), Jon Kyl (R-Ariz.), Pat Roberts (R-Kan.), Mike Enzi (R-Wyo.), John Cornyn (Texas), John Thune (R-S.D.), Mitch McConnell (R-Ky.), Lamar Alexander (R-Tenn.), and Kay Bailey Hutchison (R-Texas).

• Chicago Tribune, IRS in Political Crossfire Over Tax-Exempt Pressure Groups
• The Hill, Senators Warn IRS to Ignore Political Pressure to Rewrite Super-PAC Rules

Mark Mazur Confirmed as Assistant Treasury Secretary for Tax Policy

Bloomberg:  Obama Gets First Confirmed Tax Policy Chief in His Term:

The U.S. Senate confirmed Mark Mazur as the top tax policy official in the Treasury Department, marking the first time the post will be filled by a permanent appointee since President Barack Obama took office in 2009.

Mazur, a 56-year-old economist, will become assistant secretary for tax policy after today’s voice vote in Washington. The position has been filled by temporary and acting officials since Obama became president.

Obama’s first nominee, Elizabeth Garrett, withdrew in 2009, citing family concerns. His second candidate, Michael Mundaca, left the administration last year without being confirmed.

Number of Taxpayers Who Renounced U.S. Citizenship Fell in 2012 Second Quarter

Wall Street Journal:  The Renouncers: Who Gave Up U.S. Citizenship, and Why?, by Laura Saunders:

The latest list of renouncers is out.

One is a buyout specialist at the Carlyle Group, another a private equity executive at J.P. Morgan Chase. There’s also a big-law partner, an international socialite, an Israeli Supreme Court justice and a London-based artist.

Each one recently renounced U.S. citizenship or turned in a long-held “green card” conferring permanent-resident status in the U.S. Their names appeared on a quarterly list published last Friday by the Treasury Department, as required by law since 1996.

The list contained 189 names, far fewer than other recent lists. Some experts speculated the number dropped because many Americans who planned to expatriate while tax rates were both low and certain have already done so. (Current tax rates expire at the end of 2012.) Because there’s about a six-month delay between a renunciation and publication on the Treasury’s list, other experts expect a surge latter this year.

TIGTA: IRS to Issue $21 Billion in Fraudulent Tax Refunds From Identity Theft Over Next Five Years

The Treasury Inspector General for Tax Administration today released There Are Billions of Dollars in Undetected Tax Refund Fraud Resulting From Identity Theft (2012-42-080):

Undetected tax refund fraud results in significant unintended Federal outlays and erodes taxpayer confidence in our Nation’s tax system. Our analysis of tax returns using characteristics of identity theft confirmed by the IRS identified approximately 1.5 million undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion. TIGTA estimates the IRS could issue $21 billion in potentially fraudulent tax refunds resulting from identity theft over the next five years.

• Accounting Today
• Bloomberg
• USA Today
• Wall Street Journal

Should the IRS Adopt ReadyReturn?

Rebecca Valencia (J.D. 2010, Rutgers), Note, Get Ready for the Return! How to Make Filing Tax Returns More Efficient: Applying the State of California Franchise Tax Board's ReadyReturn to the Federal Tax System, 37 Rutgers Computer & Tech. L.J. 130 (2011):

This Note posits that the federal government, via the IRS, should offer an equivalent of ReadyReturn to federal income tax filers. It begins by reviewing ReadyReturn's development in California and explaining its operation within the state. It continues by examining whether ReadyReturn can be applied at the federal level and analyzing the legal implications of such a government-run tax-filing scheme. In evaluating ReadyReturn's pros and cons, the Note concludes that a national implementation of ReadyReturn would benefit both taxpayers and government in improved efficiency and compliance.

For criticism of the application of the California ReadyReturn to the IRS, see Jim Maule (Villanova):

• Part One: Federal Ready Return (June 25, 2012)
• Part Two: The Value of Self-Compliance (June 27, 2012)
• Part Three: Income Tax Return Accuracy (June 29, 2012)
• Part Four: The Persistence of the Tax Gap (July 2, 2012)
• Part Five: Efficiency (July 4, 2012)
• Part Six: Security Risks (July 6, 2012)
• Part Seven: Taxpayer Acquiescence (July 9, 2012)
• Part Eight: Burden on Business (July 11, 2012)
• Part Nine: Economic Impact (July 13, 2012)
• Part Ten: IRS Capacity (July 16, 2012)
• Part Eleven: Conflict of Interest (July 18, 2012)
• Part Twelve: Taxpayer Acceptance (July 20, 2012)
• Part Thirteen: IRS Authority (July 23, 2012)
• Part Fourteen: Conclusion (July 25, 2012)

WSJ: IRS Audit of Romney Donor Raises Questions About Presidential Enemies List

Wall Street Journal:  Obama's Enemies List—Part II, by Kimberley A. Strassel:

This column has already told the story of Frank VanderSloot, an Idaho businessman who last year contributed to a group supporting Mitt Romney. An Obama campaign website in April sent a message to those who'd donate to the president's opponent. It called out Mr. VanderSloot and seven other private donors by name and occupation and slurred them as having "less-than-reputable" records.

Mr. VanderSloot has since been learning what it means to be on a presidential enemies list. Just 12 days after the attack, the Idahoan found an investigator digging to unearth his divorce records. This bloodhound—a recent employee of Senate Democrats—worked for a for-hire opposition research firm.

Now Mr. VanderSloot has been targeted by the federal government. In a letter dated June 21, he was informed that his tax records had been "selected for examination" by the IRS. The audit also encompasses Mr. VanderSloot's wife, and not one, but two years of past filings (2008 and 2009).

Mr. VanderSloot, who is 63 and has been working since his teens, says neither he nor his accountants recall his being subject to a federal tax audit before. He was once required to send documents on a line item inquiry into his charitable donations, which resulted in no changes to his taxes. But nothing more—that is until now, shortly after he wrote a big check to a Romney-supporting Super PAC.

Two weeks after receiving the IRS letter, Mr. VanderSloot received another—this one from the Department of Labor. He was informed it would be doing an audit of workers he employs on his Idaho-based cattle ranch under the federal visa program for temporary agriculture workers. ...

Perhaps all this is coincidence. Perhaps something in Mr. VanderSloot's finances or on his ranch raised a flag. Americans want to believe the federal government performs its duties without fear or favor.

Only in this case, Americans can have no such confidence. Did Mr. Obama pick up the phone and order the screws put to Mr. VanderSloot? Or—more likely—did a pro-Obama appointee or political hire or career staffer see that the boss had an issue with this donor, and decide to do the president an unasked-for election favor? Or did he or she simply think this was a duty, given that the president had declared Mr. VanderSloot and fellow donors "less than reputable"?

Mr. VanderSloot says he "expected the public beatings" from the left after the naming, but he "also wondered whether government agencies, anxious to please their boss, would take notice of the target he had apparently placed on me. Now that I'm being singled out for audits, I can't help but wonder whether there is a connection." ... Every thinking American must henceforth wonder if Mr. VanderSloot has been targeted for inquiry because of his political leanings.